Rent or Own

ScottfromMenominee · Post by **ScottfromMenominee** » Thu Jul 22, 2010 3:21 am

I live in the rather economically depressed, yet beautiful lakeside city of Menominee, Michigan. I have stated in the introduction that I plan to retire in 5 and a half years, but I have a dilemma / opportunity. I pay $350 in rent for a one bedroom apartment with the water included, the lowest I could find. There are houses for sale right now for well under $50,000, including some as low as $16,000. I could buy one of these cheap houses outright in about a year and a half. Assuming the house is in decent condition, should I go for it or hold off from owning right now? I do plan to stay in this area, as I'm not inclined to do much traveling. I can save about $1000 a month, with a expenses at $650. I await your advice.

Kevin · Post by **Kevin** » Thu Jul 22, 2010 3:32 am

I'd go for it especially since housing prices are pretty low so they really don't have any place to go but up. And since you're staying in the same area, if you keep it, why would you not want to save that much money a month?

What fears do you have about buying it?

HSpencer · Post by **HSpencer** » Thu Jul 22, 2010 3:55 pm

I would recommend buying a place as a beginning. If you are handy, and can afford some fix up materials, you would be amazed at the increase in value of the property you buy. Of course, the goal should be to have your own home, and I am not recommending a speculative investment at this time. The economy as it sits now is not conducive to such a venture, unless that is all your doing and have the cash and can hold on until you got a profit that matched your investment. In this day and time it's all about your "home". You would just have to do a pencil on it and see down the road what would work for you the best. Renting has made a comeback, but again, you are too subject to someone else's whims.

JohnnyH · Post by **JohnnyH** » Thu Jul 22, 2010 8:58 pm

At those numbers I would recommend buying immediately. And I'm an anti home buying crusader!
Here's a spreadsheet analysis I did, seeing if the FTHBuyer's credit made it worth it to buy a house.
ME... http://dl.dropbox.com/u/91156/me.jpg
I ran the same analysis for YOU. http://dl.dropbox.com/u/91156/you.jpg
BUY!:)
... hope that's not to cryptic for people to understand. Let me know if I can explain something.

wringham · Post by **wringham** » Thu Jul 22, 2010 11:56 pm

I'm very much in favour of renting, but in your circumstances you should buy one of those cheap homes. Incredible prices.

ScottfromMenominee · Post by **ScottfromMenominee** » Fri Jul 23, 2010 1:13 am

Because of the crippled auto industry, we have a saying, "Would the last person leaving Michigan please turn the lights off." Thanks for all your advice and I will be working to buy a home with cash as soon as I can!

JohnnyH · Post by **JohnnyH** » Fri Jul 23, 2010 1:39 am

http://www.realtor.com/realestateandhom ... 1116086535
Wow! That is insanely cheap. If you're stable in the area, then there is no reason to be renting for that price.
Kinda makes me want to throw in the towel, buy a house up there and just garden and read!

I wonder how many other places with housing this cheap there are around the country.

ScottfromMenominee · Post by **ScottfromMenominee** » Fri Jul 23, 2010 2:04 am

We been bleeding out so many people for the past several years, it would be nice for some people to move here, especially like-minded folks, so take a chance and come visit and see for yourself! Warning: winter lasts from mid-December through March here, but there are lots of stuff to do here in the snow. Like snow angels!

GuelphDC · Post by **GuelphDC** » Fri Jul 23, 2010 3:11 am

I see buying a house as pre-paying rent. My house cost more than I would like to spend ($160k), but is going to take only approximately 6 years to pay off (or less). I bought it for 3 reasons:
1.) I would rather have the free cashflow in the future vs. paying rent.

2.) I can change my mind at any time - sell the house and rent instead, I am 30, and should have the house paid off before I'm 35 and plan to be financially independent by my early 40s

3.) My wife wouldn't let me build a tiny house

- or rather I could live in a tiny house, but she would not live in it with me.......

Post by **jacob** » Fri Jul 23, 2010 3:51 am

@JohnnyH - I'd be interested in seeing the equations you used to run those spreadsheets.

Concojones · Post by **Concojones** » Fri Jul 23, 2010 8:52 am

16k for a house, wow! Why not get a mortgage and buy it now? The rent saved is 6k, so the house only costs 10k. This is assuming no mortgage costs, taxes, insurance... Check out those before making your decision.
@JohnnyH: I was thinking the same thing as Jacob. Curious to see the spreadsheet.

Q · Post by Q » Fri Jul 23, 2010 8:57 am

You could buy a pre-fab house right here in the bay area for around 35k. You don't get a fancy yard or anything, but you could start a planter garden or a myriad of other projects and only pay the space rent.

JohnnyH · Post by **JohnnyH** » Fri Jul 23, 2010 12:45 pm

Here's the spreadsheet:

http://dl.dropbox.com/u/91156/rent%20vs%20buy.ods
Likely loaded with errors, but gave me a quick visual on how cash put into a house might perform vs other investment at different performance levels.

Chad · Post by **Chad** » Fri Jul 23, 2010 3:50 pm

There are more numbers than rent and the cost of the house you need to factor in. The link below has the best model I have found on the web. Amazingly enough it happens to be a major media site...
http://www.nytimes.com/interactive/busi ... lator.html

JohnnyH · Post by **JohnnyH** » Fri Jul 23, 2010 4:46 pm

Wow, look at those associated costs! I'm sure many could be cut but yikes. Thanks for the link.
I mostly wanted to see how the 50k purchase price would stack up as an investment at different sale prices (planning on moving) vs investment performance thresholds.

Post by **jacob** » Fri Jul 23, 2010 5:30 pm

Hey Q ... you should come and see the yard of one of my mobile home neighbors. He has a ridiculously well maintained garden/lawn.
He's probably responsible for most of the park's water bill.
Incidentally, if anyone wants to be my neighbor, all you need is a $4000 trailer and $400-450 in rent per month. There's a spot open right now.

Chris · Post by **Chris** » Fri Jul 23, 2010 6:08 pm

@GuelphDC: I don't know that your future cash flow situation would be any worse when renting vs. buying. Owning a home does not eliminate monthly housing outlays... where I live, annual property taxes alone are about equivalent to 6mos rent. Additionally, there is the opportunity cost of the down payment cash. A renter could instead invest in a cash generating asset (stocks, bonds) which would be a positive for future (and current) cash flow.

Q · Post by Q » Fri Jul 23, 2010 7:11 pm

If you buy a house exclusively to rent it out, it works out even better. Especially while you earn income.
Then when you have exclusively passive income, the house can be depreciated against that as well.
Only problem is when you cannot rent it out.
I would like to downsize myself out of my somewhat expensive apartment and into something akin to Jacob, but, I really really like the pool - so, I would need a house with a pool or a community with a pool that goes un-used mostly (like now)

GuelphDC · Post by **GuelphDC** » Fri Jul 23, 2010 11:50 pm

@ Chris - I'm not sure where the opportunity cost would measure out, at some point in the future my spouse and I may move to a cheaper area than the city we currently live in. I grew up in a small town and would prefer to live "rurally" rather than in a city.

ScottfromMenominee · Post by **ScottfromMenominee** » Sun Jul 25, 2010 5:16 am

Menominee, Michigan has a millage rate of 45.2312, so annual taxes on a $50,000 house would be $2261.56. But for a house worth, say, $16,500, it would be $746.31 or $62.19 a month. Much better than $350 a month, even with extra utility and maintenance costs. (These figures are my estimations based on the City of Menominee millage rates. Any errors are purely my own.)